Not many people outside the tech industry had heard about Silicon Valley Bank (SVB) until late on Thursday. The relatively small financial institution lends to startups and has suffered a collapse of its shares by 60% amid fears of run on reserves. It is struggling with higher interest rates and inflation.
The news from SVB – which is still solvent – triggered a run to safety on Thursday, which continues into Friday. Shares suffered a sell-off, with banks leading the charge. Money fled to the safety of US bonds – lowering their yields.
The fall in US 10-year yields toward 3.80% put pressure on the US Dollar and helped Gold recover.
The exceptions are Bitcoin, which suffers from news that the Fed set a committee to examine the risks in cryptos, and the Yen, which is falling after the BOJ left its policy unchanged.
Back to the main market theme of the day – Nonfarm Payrolls. The rush into bonds also lowered the chances of a 50 bps hike in two weeks, lowering it from 75% to 63% at the time of writing. That is closer to 50-50, which means the NFP has significant room to shape expectations about the next Fed decisions.
All in all, SVB is in trouble because of higher interest rates, and while it could be an exception, the issues in Silicon Valley are limiting enthusiasm for further big hikes, and it could bring the Fed to softer policy. The US Dollar is weaker on lower Fed expectations and is more balanced ahead of the NFP.
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